Thursday, March 28, 1996

Anne-Elisabeth Moutet looks at the hubris of a French bank that overreached itself

The European, 28 March 1996

THE persistent rumour in Paris is that Jean Peyrelevade, the chairman of Credit Lyonnais, is seriously thinking of jumping ship and joining Lazard Freres as a senior partner. It surprises no one.

Until a year ago, his bank was commonly known as "Discredit Lyonnais" , and it sometimes seemed as though there was no loss-making venture in Europe in which Credit Lyonnais was not involved. However, Peyrelevade was recently able to announce that the bank was in the black for the first time since 1991; although he was not expecting wild praise, he did hope for some modest kudos.

The bank posted token 1995 profits of Ffr13 million ($2.5m) for an overall gross banking income of Ffr43 billion - the latter down by five per cent from last year. Provisions still stood at almost Ffr6bn, encouragingly down from Ffr14bn last year. Overheads were down by 3.4 per cent.

But few French analysts or fellow-bankers were in anything but a scathing mood, pointing out that even after the biggest bail-out in French banking history, estimated at Ffr45bn by the European Commission when it gave it a reluctant go-ahead, 1996 projections were so sombre that it was unlikely that Credit Lyonnais would stay in the black.

Peyrelevade forecast that the fall in French interest rates would cost Credit Lyonnais an additional Ffr1bn to finance its loan to CDR (Consortium de Realisation), the state-backed body established last year to administer much of its debt.

Privately, most Parisian experts believe the cost of this loan will be closer to Ffr2bn. CDR borrowed Ffr145bn from Credit Lyonnais at a variable rate, while Credit Lyonnais refinanced it at a fixed rate on the markets.

THE Credit Lyonnais saga has occupied, and fascinated, the French political and banking scene for almost five years, although measures to contain what may eventually amount to a Ffr100bn catastrophe started only on 10 November 1993, when Jean-Yves Haberer, the bank's chairman since 1988 and the main architect of its all-out expansion, was finally sacked by Edouard Balladur's government. In the meantime, the bank had posted Ffr1.8bn losses in 1992, and was about to announce Ffr6.9bn losses for 1993.

That Haberer stayed so long in office has everything to do with the French system of governance of stateowned enterprises. Credit Lyonnais' boss, like his France Telecom or Thomson counterparts, is appointed by the Cabinet, and usually plucked from the small, incestuous ranks of the upper French civil service, bred in elite schools, mostly ENA (Ecole Nationale d'Administration, Haberer's alma mater); and sometimes Ecole Polytechnique. As the losses mounted and the scandals surfaced -- bankrupt Credit Lyonnais creditors from Robert Maxwell to Giancarlo Parretti made world headlines -- it was distasteful for ministers who had themselves graduated from the same exclusive establishments to throw a colleague to the dogs.

Haberer belonged to ENA's creme de la creme, the Inspection des Finances, a state body that creams off only the five best out of each 120-strong ENA class annually. He had then headed the French Treasury during the presidency of another Inspecteur des Finances, Valery Giscard d'Estaing, before branching out into the private sector and chairing Paribas. Cross the Inspection des Finances with the senior ranks of the Treasury's alumni, and you find a list of a couple hundred men -- and few women -- who are the most powerful figures of France.

Haberer's fantastic ambitions for Credit Lyonnais become clear from a list of its major fiascos. In 1990 it financed, to the tune of $1.3bn, Giancarlo Parretti's takeover of MGM studios, through its Dutch subsidiary Credit Lyonnais Bank Nederland. During the 1994 National Assembly parliamentary inquiry hearings into Credit Lyonnais, it emerged the decision to go ahead with the MGM deal was taken in half an hour by the Credit Lyonnais executive in charge of foreign subsidiaries, Georges Vigon.

Vigon, who had not even consulted his direct boss, Alexis Wolkenstein, had previously been forbidden by Haberer in writing to grant any new loans to Parretti. But this did not prevent him from stepping in after Time-Warner withdrew from a similar deal a few hours before the projected closing. Episodes like this were common under Haberer.

Such was the bank's gung-ho culture at the time that Vigon was congratulated rather than sacked. Parretti has since been declared bankrupt by American courts, while his Credit Lyonnais-financed partner, Fiorino. Fiorini's Swiss company SASEA, now insolvent, is the object of a Swiss judicial inquiry. Credit Lyonnais still owns the loss-making MGM, which it has unsuccessfully tried to sell off ever since.

In 1990 Credit Lyonnais also bought, for Ffr250m, a controlling interest in the indebted International Bankers bank from its owner, Jean-Maxime Leveque, another Inspecteur des Finances and Haberer's predecessor as Credit Lyonnais chairman. A flamboyant right-wing establishment figure, Leveque, having chaired French bank CCF before its 1982 nationalisation, fancied himself a banker; and it would have been bad form for a fellow inspecteur to deny him. Not only did International Bankers specialise in risky property financing it turned out that several of its top executives had been receiving illegal commissions to extend loans. International Bankers is now in receivership, with few of its Ffr8bn debts expected to be recovered.

Since 1977 the maverick businessman, politician, film actor, and football impresario Bernard Tapie had enjoyed a special relationship with SdBO (Societe de Banque Occidentale), a wholly owned Credit Lyonnais subsidiary specialising in financing buyouts of bankrupt companies.

BASICALLY an asset-stripper, Tapie outreached himself with the buyout of Adidas in 1990, which Credit Lyonnais forced him to sell two years later to a consortium headed by former Saatchi & Saatchi chief Robert Louis-Dreyfus for Ffr1.6bn, as his outstanding debt to SdBO stood close to Ffr2bn.

Since Peyrelevade's arrival, the Tapie affair has degenerated into a blood feud. Peyrelevade, a born Marseillais of modest origins, resents Tapie's political ambitions in Marseille as well as his flamboyant, Credit Lyonnais financed lifestyle. He ordered that Tapie's 18th- century town-house and antique furniture be publicly repossessed in the summer of 1994.

Tapie is suing Credit Lyonnais. He claims that he was forced to sell at a loss; Adidas was successfully floated on the Frankfurt stock exchange last year, and stands at a Ffr11bn market capitalisation.

Credit Lyonnais' nose for a bad loan was unrivalled; its poor customers include Eurotunnel and the developers of Canary Wharf, Novalliance venture capital and the Jacques Fath couture house. If Credit Lyonnais was not top of the list of French banks hit by the property crisis, it is partly because losses sustained by other banks were even better publicised. In fact, the Lyonnais shared the property disaster, mostly with the developer Michel Pelege.

Pelege, like La Défense developer Christian Pellerin, is still afloat -- entirely propped by Credit Lyonnais, which feels it would stand to lose more in bankruptcy proceedings. SdBO is stuck with an unsaleable property portfolio -- the "assets" unsuccessfully stripped by its stable of dubious 1980s turnaround specialists, such as the disreputable Pascal Jeandet, who was bankrupt when he died two years ago, costing SdBO Ffr1bn.

The European Commission gave its agreement to the government bail out on condition that Credit Lyonnais sold 35 per cent of its foreign banking network. This leaves Credit Lyonnais with a reduced income basis at a time when even sound banks find it hard to make money in commercial activities. Haberer's ambitions of creating a German-style universal bank are dead: Credit Lyonnais has also been forced to shed most of its industrial portfolio.

Reduced to the state of a chronically unprofitable rump, Credit Lyonnais is short of expectations, and bereft of hope. It is hard to fault Peyrelevade for thinking of jumping ship.

About Me

Anne-Elisabeth Moutet is a Paris-based journalist and political commentator. She is a columnist for the Telegraph and also writes on French affairs for the Weekly Standard and for Newsweek in the US. She often comments on the news on the BBC, BFM-TV, ARTE, al-Jazeera and France 24. This blog contains stories she wrote for these, as well as for The European, The Sunday Times, Tatler, Prospect, the Chicago Sun-Times, and more. Contact her here.
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